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Applied Quantitative Finance

Wolfgang Härdle, Nikolaus Haustsch, and Ludger Overbeck, editors
Publisher: 
Springer
Publication Date: 
2009
Number of Pages: 
447
Format: 
Hardcover
Edition: 
2
Price: 
139.00
ISBN: 
9783540691778
Category: 
Anthology
[Reviewed by
Richard Kirby
, on
09/8/2009
]

Wolfgang K. Härdle, Nicholas Hautsch and Ludger Overbeck are the editors of the second edition of this book — which, compared with the first, has widened the scope of the overall message and topics. The new chapters cover ongoing and currently dominant topics like value-at-risk, Credit Risk, the pricing of multivariate Bermudan options and Collaterized Debt Obligations, Realized Volatility and high-frequency econometrics. The authors state that they consider that modern statistical methods such as copulae are increasingly important in quantitative finance — so, for example, in their treatment of credit risk management, more weight has been put on the presentation of these themes.

The authors have also included more up-to-date data. Their hope is that these modifications give the text a higher degree of timeliness and strengthen its applicability. In a step toward readability and user friendliness, the authors have translated all numerical Quantlets into the R and MATLAB languages. The algorithms can be downloaded from the publisher’s website.

The preface of the 2nd edition is date-place stamped Berlin and London August 2008 and shows clear signs of needing an English copyeditor to correct the syntax. This may be an opportunity for Euro-American collaboration. The book was originally designed for students and researchers who want to develop a professional skill in modern quantitative applications in finance.

The work is a fruit of the Center for Applied Statistics and Economics (CASE) at the Humboldt University of Berlin. It assumes students that have some experience with probability, statistics and software applications but have not had an advance course in mathematical finance. The goal is to equip the readers with theoretical and computational tools deep enough and rich enough to be relied on for throughout future professional careers.

The aim is to make the course readable for graduate students in financial engineering but also to those who are newcomers to quantitative finance and who want to get a grip on modern statistical tools in financial data analysis. It is the hope of the authors that the mathematics of risk management and volatility dynamics will introduce the student into the realm of quantitative financial data analysis. Examples are meant to be enjoyed in an interactive book concept.

The four main parts of Applied Quantitative Finance are Value at Risk, Credit Risk, Implied Volatility and Econometrics. Forty-five authors from six different European Countries were involved in producing the chapters. The book could perhaps been improved by a large section on financial ethics. It would appear that, in view of the recent calamities in the financial world, sections on catastrophe theory, crisis intervention and productive financial chaos are not only to be desired but to be regarded as strictly necessary if we are to have a sane as well as an articulate field of Applied Quantitative Finance. Here therefore is an opportunity for German, English and American mathematical associations to co-create the experimental field of quantitative financial catastrophe theory. Governments will support it. Banks will host it, financial journalists will relish it and ordinary investors will salute its realism.


Richard S. Kirby is executive director of the Stuart C. Dodd Institute for Social Innovation in Seattle. He taught business ethics at University of Washington's School of Business Administration and is Visiting Professor of International Finance for the University of Russia's Academy of Education. He was recently selected to become first President of Kepler Space University, a NASA spin-off where he also teaches mathematical and astronomical sciences. His most recent book, written with Richard J. Spady, is The Leadership of Civilization Building.